Japanese Yen consolidates against USD amid mixed fundamental cues
- The Japanese Yen edges lower following the release of Tokyo consumer inflation figures.
- The USD stalls the overnight slide from a multi-month top and lends support to USD/JPY.
- Traders remain on the sidelines amid the uncertainty ahead of Japan’s general election.
The Japanese Yen (JPY) struggles to capitalize on the previous day's recovery move against its American counterpart and attracts fresh sellers during the Asian session on Friday. Data released on Thursday showed business activity in Japan's manufacturing and services sectors contracted in October. Adding to this, a fall in Tokyo’s core inflation rate below the Bank of Japan’s (BoJ) 2% target tempers expectations about any further rate hike in 2024 and exerts some pressure on the JPY.
Apart from this, a generally positive risk tone further undermines the JPY's safe-haven status, which, along with the emergence of some US Dollar (USD) buying, assists the USD/JPY pair to find some support ahead of mid-151.00s. That said, the recent verbal intervention by Japanese authorities helps limit any meaningful JPY downfall and cap the currency pair. Traders now look to the US macro data for short-term impetus amid the political uncertainty ahead of Japan's general election on Sunday.
Daily Digest Market Movers: Japanese Yen lacks firm directional bias amid BoJ/election-related uncertainty
- The Statistics Bureau of Japan reported this Friday that the headline Tokyo Consumer Price Index (CPI) rose by the 1.8% YoY rate in October as compared to 2.2% in the previous month.
- Further details revealed that Core CPI, which excludes volatile fresh food prices, grew 1.8% in October, down from 2% in the prior month but slightly above market expectations of 1.7%.
- A core reading that excludes both fresh food and energy prices, rose from 1.6% in September to 1.8% during the reported month, still below the Bank of Japan's 2% target.
- This follows a private-sector survey on Thursday, which showed that business activity in Japan's manufacturing and services sectors contracted in October, and points to weak economic conditions.
- This adds to the election-related uncertainty in Japan and raises doubts over the BoJ's ability to hike interest rates further this year, and is seen weighing on the Japanese Yen on Friday.
- Japan's Economy Minister Ryosei Akazawa said that it is important for currencies to move in a stable manner reflecting fundamentals and that a weak yen has various impacts on the economy.
- The US Dollar stalls the previous day's pullback from a three-month high amid bets for a less aggressive policy easing by the Federal Reserve and offers support to the USD/JPY pair.
- Friday's US macro data – Durable Goods Orders and the revised Michigan Consumer Sentiment Index – might provide some impetus as investors await Japan’s election on Sunday.
Technical Outlook: USD/JPY bulls have the upper hand while above 150.65 confluence hurdle breakpoint
From a technical perspective, weakness below the 151.60-151.55 area could drag the USD/JPY pair to the 151.00 mark. Any further decline is likely to find decent support around the 150.65 confluence resistance breakpoint, comprising the 200-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September downfall. The latter should act as a key pivotal point, which if broken decisively will suggest that the recent rally since the beginning of this month has run out of steam and shift the bias in favor of bearish traders.
On the flip side, momentum beyond the 152.00 mark could extend further towards the 152.60-152.65 region. Some follow-through buying should allow the USD/JPY pair to reclaim the 153.00 round figure. The latter is closely followed by the 61.8% Fibo. level, around the 153.20 area, which if cleared should pave the way for additional gains towards the 154.00 mark and the 154.30 supply zone.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.